In fact, shared information is becoming such a crucial part of supplier-customer transactions that it is almost as important as the product being exchanged. "Buyers are forming links with sellers who are willing to invest in the technology and to agree on the management practices that will allow this [collection and dissemination of information] to happen," says Bill Helming, a member of the board of directors of the Supply Chain Council, a national trade association. That information helps players all along the chain reduce costs and improve quality. "As a result, the chain has the choice of charging a premium or competing on cost," says Helming. "There's enormous economic leverage."
Jim Schwertner, like most beef producers implementing supply-chain technology, is doing so within the context of an alliance formed for that purpose. These alliances include representatives from every stage of the manufacturing process: ranchers, stockers/growers, feedlots, packing plants or slaughterhouses, and, in some cases, retailers. (See "Where's the Beef?" below.) While all the companies in Schwertner's alliance--called Beef Advantage--have revenues of more than $100 million, most of the calves that travel through its pipeline originate on small ranches, those with fewer than 500 head of cattle and annual sales of under $250,000. It is these small businesses that may ultimately benefit most from the system.
Calves that are born on small ranches now enter the Beef Advantage chain through Capitol Land and Livestock, which buys them either directly or through auction barns; the scant data that accompanies the animals generally travels verbally or on paper. But Schwertner expects that those ranchers, even the smallest, will start tagging their own cattle and entering information into the system when the Internet-accessible database is up and running. Under such an arrangement, the electronic audit trail that now begins with Schwertner would start with the small ranchers, who would also be able to use end-of-the-line performance data to make better breeding and management decisions.
Schwertner's company functions like a typical brokerage business: it buys cattle in large volume, takes title to them, and immediately resells them. Every day, Capitol's 15 buyers spread out across south and central Texas, purchasing cattle and trucking them to headquarters, where they are sorted by size, sex, and quality. Then the telemarketers hit the phones, cutting verbal deals with feedlots until every last Charbray and Black Angus is gone. "My dad has this philosophy: We don't go home at night with any inventory left unsold," says Schwertner.
A calf passing through Schwertner's outfit is tagged, weighed, measured, and dosed with medicines; Schwertner then supplements data collected at the squeeze chute by typing in any printed information passed along by the animal's previous owner, such as birth date and weight at time of sale. All that information will be available to James Herring on a spreadsheet when the calf makes its next stop: Friona Industries, with headquarters in Amarillo, Tex. Herring is also a member of Beef Advantage and has agreed to buy a certain number of Schwertner's beasts as part of the alliance agreement, which also includes terms for sharing information and for adopting the technology to do so.
In the time the Charbray enjoys Friona's hospitality, she may double in weight, and all the while Herring will be adding information to his own spreadsheet, which he shares with Schwertner. Combining Schwertner's data with information he gets back from Cargill Foods' Excel Corp., a packing plant that is the next link in the chain, Herring is able to calculate what conditions--how much an animal is fed or when it segues from grass to grain--produce the highest-quality carcass for the lowest cost. And like Schwertner, Herring will use that information when he's figuring out whom to buy from, possibly cutting exclusive deals with suppliers whose product brings the most return. "Using an integrated production process like this, we can create a superior product," he says.
So far, Schwertner's and Herring's biggest investment has been the tags, which go for between $3 and $11 each, depending on the manufacturer. Prices are dropping, however, and should settle in at around $4. In addition, Schwertner has spent $25,000 on readers, computers, and the serial devices that allow him to take chute-side measurements. But the expected returns dwarf that outlay.
First, there are the savings born of efficiency, which Herring estimates at 20% or more. For example, new owners, lacking information on an animal, will usually subject it to a regimen of drugs that may duplicate doses administered earlier in the chain and increase the amount of time the animal takes to clear the medications out of its system. Knowing an animal's age and rate of weight gain makes it easier to determine when to switch it from grass to grain--the less time it spends on grain, the less cost to its owner. And since restaurants, supermarkets, and other customers buy beef according to specific grades and weights, producers can use feedback on which calves throw those numbers out of whack to winnow the offending bulls and cows from the breeding pool.
And then, of course, there are the premiums. Buyers--particularly at the later stages--desperately want consistent size and quality. Packers, for example, don't want to waste time cutting excessively fatty meat down to a quarter-inch trim. And supermarkets want beef that they can easily divide into steaks and cuts of approximately the same size. As a result, these buyers have traditionally docked their suppliers for calves that are too large, too small, or exhibit other peculiarities. Schwertner says he's spoken with several buyers who are willing to pay extra to suppliers who can deliver a predetermined number of calves of predetermined size and quality. "Our customers aren't paying more yet for source-verified animals, but I know they will," he says. "Our goal is to try to get a 5% premium."
